There is an old saying in Community Scheme management: ”Levies are the lifeblood of any Community Scheme”
We urge you to read an excellent article in the Daily Investor (an electronic on-line newspaper) on 20 June by Kirsten Minnaar about setting levies too low.
We had a situation where a Sectional Title Community Scheme we managed in Johannesburg, refused to increase their levies for the 6th year in a row regardless of our recommendations and advice!
This invariably led to the scheme being unable to meet its monthly obligations and with the added burden of non-paying owners, the scheme was on a downward spiral and this purely as a result of bad decisions by the owners
Why are increases important?
Managing Agents would be able to prepare an anticipated income and expenditure schedule for the forthcoming year, submit the proposals with the anticipated increases to the Scheme Executives for confirmation before presentingthe figures to the owners for approval.
Insurance premiums, municipal tariffs, security costs, maintenance and admin expenses consistently increase every year and levies must follow suit.
What is a reasonable increase?
Setting the levies too low by Developers for marketing purposes is also problematic as subsequent annual increases to make sure that all expenses are covered would generally be in the double-digit range, adding pressure on new owners.
The rule of thumb is to increase levies by at least 6% annually to ensure that annual increases from all the service providers and municipalities are catered for.
Very often the prevailing inflation rate is used to justify lower levy increases however, I cannot remember any municipality ever using the inflation rate as a benchmark for their increases. The same applies to labour and security groups that habitually increase their members’ costs by double the inflation rate.
When levies are set too low, it immediately puts pressure on the finances of a Community Scheme and very often the only way to cover the expenses is by raising Special Levies, which should be the final resort.
We urge owners to try to avoid the pitfalls of setting the levies, which is the life blood of a Community scheme, too low, which may result in the scheme being placed in “intensive care”. Make the right decision.
Arthur Botha – CEO